Are You Taking Your Home Office Business Deduction?
April 13, 2008 by Mary Emma Allen
Throughout the b5media Business Channel this month, we’re guest posting at one another’s blogs. Jean Murray, co-blogger at Small Business Boomers has written a post about taxes. For those of you who are taking a last minute approach to your taxes (in the US, they’re due Apr. 15), Jean reminds you about the home office business deduction.
Are You Taking Your Home Office Business Deduction?
(Guest post by Jean Murray)
The SBA has a good idea. Many home business owners don’t take their home office business deduction. I don’t, and I’ll tell you why. The IRS says that you can deduct “the business use of a part of your home only if you use that part of your home regularly and exclusively.”
It’s the “exclusively” part that gets you. Sure, you can regularly work there. But you can’t do ANYTHING else there. For example, if you use a corner of your living room for a home sewing business, and you move your machine out over the holidays to put up your Christmas tree, it’s not “exclusive.”
Then you have a complicated calculation based on percentage of the home, and then more percentages of expenses related to the home (like utilities and mortgage interest). You have to be a math wizard or pay a CPA or tax person to figure it. Finally, some experts claim that you are more likely to be audited if you claim the deduction.
Also, I’m not the only one not taking the deduction. Only about 3.5 million business tax returns included claims for home office deductions, according to the IRS. So lots of other people are not taking the deduction either.
But the SBA has a proposal for a standard home office deduction. Let’s hope they get this one passed.
For more information on this subject, I have an article on Home Business Deductions in U.S. Business Law/Taxes on About.com.
I do take the home office deduction. My office is a spare bedroom, but there’s no bed in here — just two desks, several file cabinets, five computers (three laptops and two desktops), two printers, and lots of office supplies. It’s the only thing we use the room for, so even though the room is technically a bedroom, you’d never know it without the blueprints.
Also, in this particular office, I have a built-in desk and bookshelf, so that further solidifies the fact that this is my permanent workspace.
Kristen
In the UK you have a choice when it comes to claiming your working space as a tax deduction. You can just accept the HMRC’s (HM Revenue & Customs) standard rate that they just rubber stamp and never query, or you can try and use their equation to work out exactly what you might be able to claim.
Personally and on the advice of my accountant I only every claim the standard rate and have always had this accepted.
There is also the issue of business rates if the local county council where you live think that you have a ‘work space’ that they should be charging you business rates on. These are far higher than what you could possibly claim from the HMRC, so you could actually end up paying far more than the amount you hoped to claim as a deduction!
I don’t take the deduction because it has proven not to save us money on our taxes.